Almost exactly 70 years ago, a standard work in stock market literature was published. In 1949, Benjamin Graham published the first edition of “The Intelligent Investor”, in which the economist explained what was important in value-oriented share selection. He had previously published the book “Security Analysis” together with David Dodd, in 1934. These two publications saw Graham establish himself as the “father of fundamental analysis”. Amongst the most well-known and most successful advocates of his method is Warren Buffett. During his studies at New York’s Colombia University, the legendary investor attended courses by Benjamin Graham. In 1954, the tutor recruited him to his company, where Buffett also rigorously applied the value approach and remained true to this investment style. The pathway he adopted back then was to take him to the Olympus of stock market investment: today, the 88-year old is a multi-billionaire and the major role model for countless investors.
The trend in Berkshire Hathaway shares provides an impressive illustration of the life’s work of this smart US investor (see graphic). Between 1965 and 2018, shares in this investment holding rose by close on 2,500%. On average, that equates to an annual increase of 20.5%. By comparison, the average return posted for the leading US index S&P 500® over the period studied, including dividends, is less than 10% p.a. True to the value approach, Buffett focuses on shares trading at well below their intrinsic value. To that extent, this investment philosophy posits that markets do not always act efficiently. After all, that is the only way a share value can deviate from the intrinsic value. Key selection criteria in the hunt for value-oriented returns include the price-earnings (P/E) ratio, the price-to-book (P/B) ratio, the dividend yield and cash flow. A glance at the top holdings for Berkshire Hathaway is enough to reveal Buffett’s favourites. These have always featured staple US shares such as American Express, Coca-Cola and Delta Airlines. View more information on investment solutions on the topic “Value-Investing: A timeless investment style”.
It was only a few years ago that the “Oracle of Ohama” started investing in Apple. This position, in particular, reveals how timeless this investment style is. At the computer giant and iPhone manufacturer, a kind of mutation from a growth to a value share can be observed. In the current environment, fraught with numerous risks, the targeted search for value cases makes more sense than ever. Investors see themselves faced with the enduring issues of Brexit and trade wars as we move into the autumn of the 2019 trading year: no deal between the UK and the EU is yet in prospect for the UK’s exit from the European Union, scheduled for 31 October. Meanwhile, the dispute between the USA and China looks to be escalating to the next level right now. Beijing has declared that it will be levying additional tariffs of between 5% and 10% on American goods with a value of around USDbn 75. According to the Ministry of Commerce, these will take effect from 1 September or 15 December. The USA promptly reacted and, for its part, announced additional tariffs on imports from China.
Given this background, it would take a brave investor to hope for movement in the low yield on fixed-interest investments – a further argument for looking to the frequently dividend-strong value shares. However, such a strategy cannot be implemented just like that. In seeking out the shares with the greatest prospects of a return, access to extensive data material is required along with expertise and know-how. These three factors are found bundled together at “Finanz und Wirtschaft” (FuW). The biggest business editorial team in Switzerland studies daily what is happening on the international capital markets, analysing a huge pool of companies. With the FuW Value Portfolio, this recognised publication is following in the steps of Benjamin Graham and Warren Buffett. Focussing on Europe and North America, the experts seek out international pearls of value. The positive trend in the FuW Value Portfolio demonstrates that this investment style has lost nothing of its attraction, even 70 years after the publication of the standard work on the subject.
View more information on investment solutions on the topic “Value-Investing: A timeless investment style”.
The press release on the continued cooperation with Finanz und Wirtschaft (FuW) can be found here
